The formula
Monthly payment = P × r × (1 + r)n ÷ ((1 + r)n − 1), where P is the loan amount, r is the monthly interest rate (annual rate ÷ 12 ÷ 100) and n is the number of months. If the rate is zero, the payment is simply the loan amount divided by the number of months.
Worked examples
| Loan | Rate | Term | Monthly payment | Total interest |
|---|---|---|---|---|
| $20,000 | 7.5% | 5 years | $400.76 | $4,045.46 |
| $10,000 | 6% | 3 years | $304.22 | $951.91 |
| $5,000 | 0% | 2 years | $208.33 | $0.00 |
| $35,000 | 9% | 6 years | $630.43 | $10,390.96 |
What this calculator leaves out
The figure is the principal-and-interest payment only. Origination fees, insurance, taxes and late charges are not included, and the calculator assumes a fixed rate with payments made exactly once a month. A loan quoted with a promotional rate that steps up later will cost more than this estimate suggests.
Shorter terms cost less overall
A higher monthly payment over a shorter term almost always means less interest in total, because the balance shrinks faster. Comparing the total-interest line for two different terms is the quickest way to see what the lower payment is really costing.
Related guides
Frequently asked questions
Does this include fees?
No. It covers principal and interest only. Add any fees quoted by the lender on top.
What if the rate is zero?
The payment is the loan amount divided evenly across the months, and the interest line reads zero.
Can I use this for a mortgage?
The arithmetic is the same, but use the Mortgage Calculator if you also want property tax and insurance folded into the monthly figure.